The Coalition government’s promise to replace the age of entitlement with an age of personal responsibility deserves strong encouragement. Done well, it would help restore the budget to surplus and free up funds for more productive uses such as tax cuts and outlays that improve productivity. To maximise the gains, however, the government needs to apply consistent rules about when personal and corporate responsibility should replace entitlements.

Instead, it looks as if the government will keep excessively generous income thresholds allowing people who are capable of fending for themselves to receive a wide range of entitlements. Government assistance to many favoured industries will continue to distort markets and harm economic efficiency. Examples include mining, irrigation, naval shipbuilding, finance, electricity distribution, drought affected agriculture and possibly aviation.

The Prime Minister
Tony Abbott
often seems willing to ignore his commendable principle that “governments should do for people what they cannot do, or cannot do efficiently, for themselves, but no more". Applying this dictum, it’s hard to see why anyone should be entitled to a maximum welfare benefit if their income is above the minimum wage of $32,354 a year. One spectacular rort that will probably survive even allows retirees with an income of over $1 million to get subsidised drugs for $6 a prescription while a minimum wage earner pays $36.90.

Assistance to car makers ended

The government has rightly ended further assistance to local car makers and rejected calls to subsidise the SPC cannery at Shepparton. Coalition governments in NSW and Queensland are trying to offset the impact of regulations – endorsed by Labor’s former energy minister
Martin Ferguson
as “cutting edge" – guaranteeing a return to electricity distributors on billions of dollars wasted on new “poles and wires" to meet non-existent demand. But little progress is occurring elsewhere against corporate welfare.

Although Commonwealth/state agreements during the Howard and Rudd eras required full cost recovery of the Commonwealth’s $6 billion spending on irrigation infrastructure, there is no hint that a cent will ever be recovered from farmers who benefit. Unless the Treasurer
Joe Hockey
mounts a successful rear guard action, the government will spend over $40 billion on designing and building new submarines when high-quality German subs can be imported for about $6 to 7 billion. A trouble plagued new Australian made sub will certainly increase defence spending, but not boost overall capability.

This newspaper reported on Thursday that Hockey is considering giving
Qantas
special assistance “because it does not operate in a free market environment". Although some governments subsidise their international airlines, Australian travellers are the beneficiaries. If Qantas quits some overseas routes, there will still be competitively priced alternative carriers.

Compulsory superannuation

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Hockey is loath to tackle the role of compulsory superannuation as a hugely expensive form of government assistance that has artificially expanded the Australian funds management industry to the world’s fourth largest in an economy which is only the 12th biggest. According to standard economic analysis and the Coalition’s philosophical disposition, letting people decide for themselves what they do with their income would produce better outcomes.

When the social welfare minister
Kevin Andrews
announced a social security review in January, he referred to the “ballooning growth" as “unsustainable". Shortly afterwards he said the review excluded the age pension; the biggest and fastest growing cost. The budget papers estimate it will cost about $42 billion in 2014-15. The review will concentrate on the Newstart Allowance disability pension, expected to cost about $8 billion and $16 billion respectively in 2014-15.

When Treasury’s highly conservative cost projection for the super tax concessions of over $30 billion in 2014-15 is included, budget support for retirement incomes clearly dominates welfare costs Yet Hockey excluded the growing cost of the tax concessions from the Commission of Audit’s purview. Rather than entrenching personal responsibility, the uncapped entitlement to tax free super payouts means that younger people will have to fund much of the growing cost of government services for these retirees who are often in a better position to fend for themselves.

This tax free income is exempt from the commonwealth seniors health card’s means test, creating an entitlement to a $858 “seniors’ supplement" ($1294 for couples), plus prescriptions six times cheaper than for minimum wage earners. These cards, whose holders all have incomes well above minimum wages, would be abolished if the age of entitlement ended.

More personal responsibility would also require tighter means tests on the age pension. A home-owning couple can now have over $1.1 million in other assets and still get a part pension entitling them to valuable concessions unavailable to those in the workforce. The cut-off point for a part pension is $47,065 for singles and $72,009 for couples.

Foreshadowed cuts to family payments

While the age pension seems untouchable, Hockey on Thursday foreshadowed cuts to family payments where there is also scope to tighten means tests. A two-parent family that qualifies for one of the main payments, Family Tax Benefit B, can have an adjusted taxable income of $176,390 before this benefit cuts out.

Hockey raised the prospect that he would go much further when he said in a speech in London in 2012, “Without a social safety net, Hong Kong offers its citizens a top personal income tax rate of 17 per cent and corporate tax rates of 16.5 per cent". Hockey did not necessarily endorse this approach. But he could tackle the cost of entitlements without ripping a hole in the basic safety net by making benefits partly repayable as future incomes rose.

Clawing back some of the cost of age pensions, age care and super tax breaks from deceased estates would move closer to the Asian model in which children are expected to support their ageing parents. Abbott and Hockey are unlikely to take this step into a new era of personal responsibility. While they talk the talk on ending entitlements, they seem too fearful of being attacked for engaging in class warfare to really slash middle and upper class welfare.